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The Murdoch Style, Under Pressure

Rebekah Brooks, chief executive of News International, is the former editor of The News of the World, a tabloid owned by Rupert Murdoch that is enmeshed in a hacking scandal.Credit
Indigo/Getty Images

Risk-taking and line-skirting have always been just one more cost of doing business for Rupert Murdoch.

But before Thursday, the widening voice-mail hacking scandal at the British tabloid News of the World had threatened to stain the company’s image in a way that other embarrassing incidents at News Corporation’s far-flung media properties — which also include the Fox networks and The New York Post — had not.

In the past, Mr. Murdoch has either outlasted his critics or acted swiftly to limit the fallout. On Thursday, he was in damage-control mode again: The company announced it would shut down The News of the World as of Sunday.

Mr. Murdoch had already moved quickly to denounce the hacking and announce its intention to cooperate with the police, but the damage was proving difficult to contain.

Before the sudden closing of the newspaper, there was a growing consensus within the company that Rebekah Brooks, the chief executive of News International and onetime editor who has become the focus of much of the outrage over the hacking, would be forced out of her job, according to people with knowledge of discussions inside News Corporation.

The possibility of firing Ms. Brooks was one that several people close to Mr. Murdoch said he was fiercely resisting because he was loyal to her and viewed the campaign against her as a vendetta by the company’s political enemies.

One of these people, who did not want to be identified discussing internal matters, said there was also a belief within the company that Andy Coulson, the former News of the World editor who was forced to quit as communications director to the British prime minister, would also come under increasing scrutiny.

Until Thursday, the harm had been limited to the company’s reputation. The News Corporation did not yet face heavy financial losses, even as the advertiser boycott of The News of the World grew. The company’s shares dropped 3.6 percent on Wednesday to $17.47, after rising for most of the year, but on Thursday rose slightly to $17.75.

But the episode threatened the biggest deal on the News Corporation’s plate: British approval of its complete takeover of BSkyB, the satellite television company.

Before Thursday's announcement, David Bank, a media analyst for RBC Capital Markets, said the hacking scandal had so far been a blip in the company’s vast business holdings and noted how little the newspapers contributed to the company’s bottom line. The News of the World is just a piece of News International’s large footprint in Britain. The company also publishes The Times of London and The Sun.

Over all, revenue from the publishing division of News Corporation accounted for only 17 percent of its revenue in the last nine months. In that time, cable network programming accounted for 61 percent, and film, which includes the 20th Century Fox studio, was 20 percent.

Video

TimesCast | British Phone Hacking

Prime Minister David Cameron is under pressure to call for an immediate inquiry into the British tabloid phone-hacking scandal.

Still, Mr. Murdoch was evidently worried enough about the fallout from the hacking scandal that he convened what someone close to him described as a “war council” in Sun Valley, Idaho, where he was attending a media conference. Mr. Murdoch was there on Wednesday with his wife, Wendi, and his son Lachlan.

Mr. Murdoch, weighing into the controversy for the first time since some of Britain’s leading politicians called for an investigation into the News Corporation’s news-gathering practices, called the accusations of hacking “deplorable and unacceptable” and vowed to cooperate with any police inquiries.

But with damaging revelations about the extent of the hacking emerging each day — the latest were reports that The News of the World had accessed voice mails belonging to family members of dead soldiers — Mr. Murdoch’s regretful expressions of disapproval could go only so far.

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“Depending on where the investigation goes, how widespread it goes and who knew what when, this is something that could tarnish him seriously,” said Rem Rieder, the editor and a senior vice president for the American Journalism Review. “This seems institutional.”

The News Corporation is no stranger to scandal. Fines for indecency, lawsuits charging anticompetitive business practices and libel claims are a fact of life for the company, which has been able to easily absorb the financial inconvenience.

In 2009, advertisers boycotted Glenn Beck’s Fox News program after the host said President Obama was racist. Taking the action in stride, Fox said the advertising dollars merely shifted to other time slots. And in January the company paid a $500 million settlement to Valassis Communications, which had accused a News Corporation subsidiary of trying to obtain a monopoly in the in-store coupon business.

The most recent prominent incident with the Federal Communications Commission came last year after the network showed an episode of “American Dad” in which a horse appeared to ejaculate on a character’s face. The commission proposed a $25,000 fine. This week, The New York Post was sued for libel by the hotel maid who has accused Dominique Strauss-Kahn, the former International Monetary Fund chief, of sexual assault. In its coverage of the case, The Post has called the maid a prostitute.

In Britain, advertisers had begun to shun The News of the World, removing ads from the tabloid. Some of these companies included Ford, Mitsubishi, the Lloyds Banking Group and Virgin Holidays.

The biggest risk would be to the proposed purchase of BSkyB. The News Corporation already owns about 39 percent of the company and has been trying for a year to acquire the rest. The acquisition would tighten the company’s grip on British broadcasting, but it has faced scrutiny from critics who say that one company should not have so much control of the television market there.

The review of the deal was expected to end on Friday, and all indications had been that the News Corporation would win approval.

Ofcom, the British regulator, said in a statement Wednesday that it was not responsible for investigating the hacking, “which properly lie in the hands of the police and the courts,” but that it was “closely monitoring the situation and in particular the investigations by the relevant authorities into the alleged unlawful activities.”

“I think people are asking themselves, ‘does this become an issue for the BSkyB transaction?’ ” Mr. Bank said. “I can’t imagine that it does in any material way.” But, he said, “it’s a pretty inconvenient time.”

Tim Arango and Evelyn M. Rusli contributed reporting.

A version of this article appears in print on July 7, 2011, on Page B1 of the New York edition with the headline: The Murdoch Style, Under Pressure. Order Reprints|Today's Paper|Subscribe